2024 in DILA

This is the last day of the year and as we reflect on 2024, we at DILA Capital are filled with gratitude for the entrepreneurs who inspire us, the investors who trust us and the colleagues who drive us forward. We wrote this letter for all of them and are now publishing it here for everyone to read. Here is to an amazing 2025!

Dear DILA Friends, Family, and Investors,

As we close 2024 and look ahead to the coming year, we want to take a moment to reflect on what has been an active period for DILA amid a challenging year for the venture capital industry globally and in Latin America.

2024 in Review

Despite 2024 being overall a slow year in terms of transactions and volume, activity did pick up somewhat in the second half of the year. In this period, we identified and invested in five new high-potential startups and made follow-on investments in five portfolio companies that have systematically outperformed the market. We also approached strategically and stayed disciplined in those cases of companies that initially displayed strong fundamentals, but weren’t necessarily performing above average, making the hard but optimal investment decision not to follow on. This approach aligns with the “power law” strategy of increasing ownership in winners while mitigating risk. Additionally, we successfully exited Cobee, selling the company to Pluxee in a multi-hundred-million-dollar transaction.

Our portfolio has demonstrated resilience throughout the year. Out of the total number of portfolio companies that launched a fundraising process this year, 88% managed to successfully complete the round, despite the current “haves and have-nots” investment environment. This highlights the quality of the founders, who continue to thrive amid broader market headwinds.

Based on the insights gained from our previous funds and with a robust, diverse portfolio, we strategically decided to reserve the remaining capital in DILA IV for follow-on investments. This approach enables us to continue supporting our portfolio companies as they scale while preparing for the launch of DILA V in 2025.

Venture Capital Landscape

The venture capital ecosystem has experienced fluctuations both in terms of funding and exit activity over the past two years, influenced by macroeconomic conditions, geopolitical tensions, and shifts in microeconomic dynamics. In 2022, global VC financing amounted to approximately US$534.3 billion. In 2023, this figure dropped by 34% totaling US$355.0 billion.

By the third quarter of 2024, global VC financing reached US$242.2 billion, representing an 11% decrease compared to the same period in 2023 and anticipating another slow year. This trend reflects a cautious approach from limited partners amid higher rates, macroeconomic challenges, and a subdued exit market.

The global exit market reached a value peak of US$1.5 trillion in 2021, and has struggled since then, with values dropping 77.5% and 83.8% in 2022 and 2023, respectively. 2024 displayed a similar trend during the first half but showed gradual recovery of IPO and M&A activity during the second half. Overall preliminary data for 3Q24 reports 2,076 M&A deals, 72 IPOs, and 8 SPAC exits. Despite the slight expansion, market caution persists, driving many startups to explore secondary market transactions, which increased 58% YoY, reaching a global record volume in 2024.

Latin America, particularly Mexico, demonstrated resilience amid the global shift. By 3Q243, Latin America secured US$2.7 billion in venture capital funding across 442 deals, with Mexico accounting for US$879.1 million. The Mexican ecosystem displayed positive signs of recovery, with a surge in deal flow as a proxy of the creation of new companies, as well as continued appetite of international capital in regional assets, reaching 46% of total venture capital funding in the first half of 2024.

Why We Are Cautiously Optimistic About 2025

Our cautious optimism for 2025 stems from several factors:

1. Mexico’s Unique Positioning in the Global Economy

Mexico has surpassed China as the United States’ top trading partner for the first time in 20 years, with trade imports4 reaching US$476 billion in 2023, compared to China’s US$427 billion. This reflects a structural, geopolitically driven shift with long-term implications. The nearshoring trend continues to drive commerce expansion and foreign direct investment (FDI) into Mexico. As of 1H24, FDI reached US$31.1 billion, marking a record high figure and reinforcing Mexico’s role as a key hub in global supply chains. As companies realign their manufacturing and supply chain strategies, Mexico’s strategic geographic position and industrial infrastructure make it a critical player in this evolving global trade landscape.

While there is a probable short-term scenario of tariff increases effected by the new US administration that would impact Mexico’s commerce flow, these are likely to be accompanied by similar and more comprehensive commerce restrictions targeting China. The latter would mitigate short-term effects and continue to drive the long-term trend, strengthening Mexico’s competitive position.

Furthermore, the continued growth of the U.S. economy supports Mexican consumers through robust remittance flows. This effect is amplified by a more stable Mexican Peso, in the USD/MXN 20.00 range, which increases the purchasing power of U.S. dollars, enhancing their impact on local consumption.

A strong correlation between U.S. and Mexican industrial production provides a solid foundation for Mexico’s export-driven economy. This interdependence ensures that Mexico remains closely tied to U.S. economic activity, supporting industrial growth and trade and with that generating a stronger demand for local technological products and services. Specifically, we expect a spike in demand for financial products and services through fintech companies as well as a requirement for a more digitalized economy, mainly through software providers.

2. Stable Economic Policy and Economic Tailwinds

Since Mexico became investment grade in the early 2000s, its economic policy framework has been consistent, except for the last year of the former administration.

President Sheinbaum’s recently announced budget prioritizes reducing the fiscal deficit from 6.0% of GDP in 2024 to 3.9% in 2025, hinging on ambitious yet achievable growth projections of 2.5%, provided fiscal discipline remains intact. Trade dynamics are central to this outlook. While Trump’s recent tariff threats on Mexico and Canada have unsettled markets and created uncertainty for multinational investments, these moves are more likely strategic bargaining tactics than a prelude to generalized tariffs. The USMCA trade agreement, up for review in 2026, reinforces the deep economic interdependence between Mexico, the U.S., and Canada. North American integration is too entrenched to reverse, driven by essential mutual trade flows and shared economic interests. A clearer picture of U.S. policy will emerge by early 2025, but Mexico’s commitment to this economic partnership remains unwavering.

On the monetary front, Mexico’s central bank is expected to continue easing interest rates, with an additional 125 basis points projected to bring rates to 9.0% by May 2025. While Mexican rates have a lesser impact on markets compared to the U.S. or similar economies like Brazil — due to Mexico’s relatively low levels of corporate and retail credit — the easing cycle will provide a more supportive macroeconomic environment for businesses and consumers alike.

3. Track Record

The strong performance of DILA III, combined with our early optimism for DILA IV and the successes across our portfolios, reinforces our confidence in our strategy moving forward. As of the end of 2024, the unrealized returns for DILA III — and even at this early stage for DILA IV — place both funds in the top quartile of the global industry.

Our disciplined approach to sourcing and scaling high-impact companies positions DILA as a trusted partner in Latin America’s venture capital landscape. DILA’s successful track record investing and divesting prior funds has kickstarted a flywheel effect, securing access to the next generation of winning companies and driving persistence in the Firm’s top performance. DILA continues to position itself as the “first-call” for entrepreneurs, as evidenced by our indicator of access to investment opportunities. Throughout the last 4 years, DILA has accessed, on average, 93% and 85% of closed transactions in Mexico and the whole Spanish-speaking region, respectively.

4. Strengthened Public-Private Collaboration

The government’s announcement of a special business advisory council marks another promising development. This council seeks to strengthen connections between the public and private sectors, fostering collaboration with both domestic and international business communities.

Many members of this council are well-known to us, with some also serving as limited partners and advisors to DILA, further positioning us at the forefront of Mexico’s economic and entrepreneurial ecosystem. Over the past few weeks, we’ve engaged in ongoing conversations with this group, who share our optimism for the years ahead. The business community remains deeply committed to Mexico and well-prepared to address the challenges posed by a complex geopolitical environment and potential threats to the Mexican export market.

Looking Ahead

We’ve operated through several cycles and validated that during periods of economic and market turbulence the best opportunities and most enduring companies have been created. We are long-term investors, and we understand that creating value takes time, but these moments challenge entrepreneurs to innovate, strengthen their business models, operate with cash management responsibility and build resilience.

Similarly, such periods allow investors to identify undervalued assets and invest in the next generation of market leaders. We believe that the 2025 vintage presents a particularly attractive entry point in Latin America, with seed and Series A valuations declining close to 30% since the peak of 20227.

While we anticipate a volatile and slow first quarter of 2025 — driven by tariff threats and policy uncertainty in the Mexico-U.S. relationship — we approach the year with optimism, guided by deep market insights, a proven investment thesis, and the unwavering support of our investors. We remain committed to building on our successes, leveraging Mexico’s unique positioning, and navigating the complexities of an ever-evolving market. We believe opportunities will emerge for those who are patient and ready to take on what the region has to offer.

Thank you for your trust and partnership. Together, we have built something truly extraordinary, and we look forward to continuing this journey with you in 2025 and beyond.

Wishing you a prosperous new year,

The DILA Team

Sources

1. Venture Pulse Q3 2024, KPMG.
2. State of Venture, Global Q3 2024, CB Insights.
3. Q3 2024 LAVCA Industry Data & Analysis, LAVCA.
4. U.S. Census Bureau.
5. Secretaría de Economía, Mexico.
6. As reported by Pitchbook and Carta benchmarks for the respective vintages.